What do LLP Members do?
A limited liability partnership must have at least two members by law. Without at least two members forming the company, it couldn't be classed as a partnership!
If for whatever reason, a partnership is set up with two original members, but has to continue to trade under one person for any longer than six months, then that person will have to assume the liability for the partnership of all debts incurred over that period. Situations like this may arise through an unfortunate accident leaving one partner left to run the company. Where the number of members within a partnership falls to just one, there could be grounds for winding up the LLP completely.
When going through a company formation, you are not limited to the number of members you have in your LLP. During incorporation the named members of an LLP will be those who sign the incorporation documentation. Once set up, any individual or company may become a member of your LLP, and will be accepted through agreement with the existing members. Should the worst happen and one of your LLP members dies, or a company signed up as a member should fold and cease trading, then they would no longer be a member of your LLP.
One of the rules set for an LLP is that if it has 20 members or less, then those members names must be listed on the company headed paper. If you grow your LLP to include over 20 members however, then it would obviously become too large a list of names to be included on all letterheads, so in this case you are required instead to keep a full list of members names at your company registered address, and allow the list to be viewable by the public.
An LLP can be liable to consequences if they fail to adequately disclose all LLP members names. For example, if your LLP were to sign up a new member but fail to disclose their name as a member if the number was under 20, then that member were to suffer a financial loss as a result, the LLP could be liable to damages.
As a normal member of an LLP you will not usually be considered to be an employee of the partnership. However, a member can opt to become both a member and an employee, receiving both a paid salary (as an employee) and a share of the profits (as a member).
Your duties and rights as a member of an LLP
As a member of an LLP, your rights and duties will be set out within the LLP agreement or legislation. As a rule each member will not owe a fiduciary duty to any other members of the LLP, unless there are any contractual clauses written into the agreement, or the member acts as an agent of the partnership.
When you become a member of an LLP you will automatically be deemed to become an agent of the LLP. You will have a duty of care to abide by, and this will be in relation to the transactions entered into by yourself on the LLPs behalf. Your duty of care many cover the following points:
exercising appropriate care and skill, carrying out the instructions of the LLP with due care and attention, carrying out your business with honesty and integrity, not accepting bribes or making any personal profits off the back of the LLP, and not allowing a conflict of interest.
What are Designated members?
When an LLP is incorporated, it must have at least two designated members. These two members can be corporate or individual members, and the their names will be shown on the incorporation document. However, every person that joins can be included as a designated member, whether they were present at the time of incorporation or not. If the number of designated members should drop down to just one single person, then all members of the LLP will then be considered to be designated members regardless of the date they signed up.
The registrar of companies at Companies House will need details of who your designated members are, so if there are any changes to the list of designated members within your LLP, you can deliver the new updated details at any time to the registrar of companies. You don't have to wait until the end of the financial year to notify them of any changes. If one of your members should leave, the they would also cease to be a designated member also.
Is there a difference in duties?
The duties of a designated member of an LLP will be in addition to those they carry out as a normal LLP member. A designated member may also be asked to carry out duties such as:
completion and filing of the annual return,
signing the accounts of the LLP,
be responsible for the delivery of the company accounts to the registrar of companies,
choosing and appointing an auditor,
communicating any changes within the registered office, changes or amendment of the company name, or changes to the LLP's membership, to the registrar of companies, and
acting on behalf of the LLP if it is wound-up.
As well as holding some different duties, a designated member can sometimes acquire some additional management powers. These can often be compared to those powers held by a director of a limited company.
You may have heard of the term 'shadow member' but was not entirely sure what that role entails. Quite simply, a shadow member is someone who often acts behind the scenes, this may be because they cannot be formally appointed for some reason. A shadow member may issue directions or instructions that other LLP members carry out. It is unlikely that a professional advisor hired by he LLP to give advice will be treated as a shadow member, despite how useful their advice may be.
Stepping down or resigning your LLP membership
If a member wishes to resign their post and cease to be a member of the LLP, then this is usually done with the agreement of the other members. Reasonable notice can also be given to the other members of your wishes, thus allowing them to react and respond accordingly. This can happen when an individual wishes to retire for example, or when a company registered as a member decides to move their business interests elsewhere.
Members signing up to an LLP may want to enter into a formal agreement that outlines their duties and rights in respect of the LLP and to each other. Although there is no statutory requirement for an LLP to formally draw up and adopt a partnership agreement, should the LLP fail to adopt one, there are default provisions that can be applied to membership. Most agreements will be in writing, and most larger LLPs will adopt a written agreement, although implied or verbal agreements can often be enough to replace the default provisions.
There are a number of default provisions in place under Regulations 7 and 8 of the Limited Liability Partnership Regulations 2001. These provisions are:
The mutual rights and duties of the members and the mutual rights and duties of the limited liability partnership and the members shall be determined, subject to the provisions of the general law and to the terms of any limited liability partnership agreement, by the following rules:
All the members of a limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership.
The limited liability partnership must indemnify each member in respect of payments made and personal liabilities incurred by him—
(a) in the ordinary and proper conduct of the business of the limited liability partnership; or
(b) in or about anything necessarily done for the preservation of the business or property of the limited liability partnership.
Every member may take part in the management of the limited liability partnership.
No member shall be entitled to remuneration for acting in the business or management of the limited liability partnership.
No person may be introduced as a member or voluntarily assign an interest in a limited liability partnership without the consent of all existing members.
Any difference arising as to ordinary matters connected with the business of the limited liability partnership may be decided by a majority of the members, but no change may be made in the nature of the business of the limited liability partnership without the consent of all the members.
The books and records of the limited liability partnership are to be made available for inspection at the registered office of the limited liability partnership or at such other place as the members think fit and every member of the limited liability partnership may when he thinks fit have access to and inspect and copy any of them.
Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives.
If a member, without the consent of the limited liability partnership, carries on any business of the same nature as and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business.
Every member must account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property of the limited liability partnership, name or business connection.
8. No majority of the members can expel any member unless a power to do so has been conferred by express agreement between the members.
A written agreement will usually outline and clarify the details of the company, as well as the members rights and duties on behalf of the LLP. These will usually include details of:
• name of LLP
• business of LLP
• place of business
• ownership of property
• banking arrangements
• members’ capital contributions and shares
• distribution of profits
• business drawings
• approval of accounts
• a member’s responsibility to the LLP and other members
• the management and decision making processes
• members’ status
• a member’s leave entitlements
• a member’s retirement
• how to vary the agreement
• limit of a member’s authority
• admission and removal of members
• termination and winding-up
• how designated members are appointed and removed
A written LLP agreement need not be available for inspection by anyone other than the members of the LLP. As this is not a public document there is no reason for it to be submitted to the registrar of companies at Companies House. The agreement is for the use of, and guidance for the LLP members.
Bankruptcy of a member of an LLP
If an LLP member is made bankrupt, then they will cease to be a member of that LLP. Furthermore, they cannot be involved in any way with the management or business affairs of the LLP. However, the LLP may enter into a voluntary arrangement with its members, allowing a member who is subject to a voluntary arrangement to continue their involvement in the business affairs or management of the LLP.